PBGC: Deficit Continues to Grow

June 27, 2003 (PLANSPONSOR.com) - The steady stream
of private sector defined benefit pension plans taken over by
the federal pension insurer continues to push the agency
further into the red, officials announced.

According to Vince Snowbarger, assistant executive
director of the Pension Benefit Guaranty Corporation
(PBGC), the agency’s deficit grew by $1.8 billion between
the end of its 2002 fiscal year and March 31, 2003 to $5.4
billion, Washington-based legal publisher BNA reported.
Snowbarger released the new figure as part of a
presentation to the US Department of Labor’s ERISA Advisory
Council Working Group on Defined Benefit Funding.

The latest figure follows a PBGC announcement in
January that it had suffered an $11.37-billion loss in FY
2002, swinging from a $7.73 billion surplus at the end of
FY 2001 to a $3.64 billion deficit for FY 2002. Executive
Director Steven Kandarian listed the continuing crisis in
pension funding in the steel and airline sectors in
particular as a major cause of the sobering fiscal report
(See
PBGC Reports Record
Loss
).

Snowbarger’s presentation to the working group also
showed that the agency’s single employer premium income
paid by companies whose pension plans the PBGC insures, has
been relatively flat over the last several years and that
the 2002 level is the lowest since 1992.

Also the funding picture for the private sector DB space
is still vexingly problematic, the PBGC official said in
his presentation. Total underfunding for PBGC-insured
single employer plans is projected to be $325 billion for
2002, Snowbarger said.

Showing the top 10 firms presenting claims for fiscal
1975 to the present reflects a weakness in the funding
rules, Snowbarger argued. Bethlehem Steel, with claims of
$3.9 billion (largest of the 10) and 95,000 covered
participants, reflected a funded ratio of 48%. Sharon
Steel, with claims of $0.3 billion (smallest of the ten)
and 6,900 covered participants, reflected a funded ratio of
21%. Snowbarger also pointed out that over 90% of company
debt ratings for large claims are below investment grade
status.

Racing to Avoid More Liabilities

“Shutdown benefits are not paid for,” Snowbarger said.
Shutdown benefits are additional benefits triggered by a
shutdown of a plant or permanent layoff of workers
primarily in the steel, auto, and tire and rubber
industries, he said.
The PBGC guarantees shutdown benefits, up to statutory
limits, if the shutdown occurs before the plan termination,
but not if the shutdown takes place after, Snowbarger
said.

Shutdown benefits can be a significant drain to the
system, Snowbarger said. Referring to LTV Steel, he said
the PBGC incurred $200 million in additional liabilities
because termination of the plan occurred after the
shutdown.

As a result, PBGC has “seen the handwriting on the wall”
and now moves to terminate plans before a shutdown occurs,
Snowbarger said. “This sets up a race to the court house,”
he said. The agency finds this approach “distasteful” and
does not like to take “precipitous action to avoid
liabilities,” Snowbarger told the working group.

Finally, Snowbarger, listed the following issues PBGC is
currently examining: